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Breaking Down the link between Gold CME future and OTC spot

Rosario Pisana

First, we started with FED announcement signaling it would do practically anything – extending loans to big and small businesses and purchasing unlimited amounts of government debt – to help an American economy in a race against time.

Secondly – and most important – due to the coronavirus outbreak, three of the major refineries worldwide have suspended gold production in Switzerland. As of now they will be suspended between 29th March and 5th April. This decision produces a divergence in the offer between the physical GOLD and the futures market.

The effect on the market is huge, given that Switzerland is a crucial hub for the precious metal, 80% of the world supply goes through Switzerland, 70% are in the region they decided to suspend their operation and the physical market is going to be materially impacted as a result.

Traders have been facing today (24th march 2020) a significant increase in the volatility leading to gold spreads blowing out, starting from the Asian session and expanding during the all European and American ones.

During our activity today, we had the chance to speak directly with some dealers in one of the tier one banks LPs, confirming that the link between CME futures and OTC spot has broken down.

Here at Mayfair Brooks, our outlook is still very much long Gold, which it has been pretty for the last few years, where we are buying any dip possible and extending our positions. With the world in turmoil, we believe we are going to see the gold price break all records, by testing its all-time highs at $1,900, eventually breaking it and going past the $2,000 mark.

We will keep an eye on the markets though and remember that the markets dictate our trades and not the other way round. Especially in the times we live in now.

The article was written by Rosario Pisana, Chief Trader and Analysist at MayfairBrooks

This article was originally posted on FX Empire

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